The Market Status Question: Manufacturers Oppose an Upgrade for China

Chinese industries still get lots of government support, says U.S. coalition.

At year’s end, the outgoing Obama administration will have at least one big decision left to make: Whether to change an official and fundamental way we view China’s economy.

That’s right, we’re talking about China’s non-market economy status. If that designation is changed, there will be significant repercussions for U.S. industries that face stiff competition from Chinese imports. And a coalition of American manufacturing groups is speaking out to stop it.

But let’s take a minute to review some history.

Here’s what’s up: When China joined the World Trade Organization (WTO) back in 2001, it did so on the condition that other economies – like the United States and the European Union – would be allowed to treat China as a non-market economy for the next 15 years. They argued the Chinese government, not supply and demand, was setting the domestic price for commodities like steel. China intervened in its markets too much. Therefore, China should be considered a non-market economy until market-based reforms took place.

China agreed, and it joined the WTO. And the 15-year anniversary of the agreement arrives in December.

Why is such a designation important? Well, when a government is considering anti-dumping duties against another country that is suspected of offloading subsidized exports into a foreign market, WTO rules stipulate the suspect country’s domestic prices must be taken into consideration … if the country is a market economy. A non-market economy designation, however, allows other governments to ignore China’s official numbers because they’re widely considered to be untrustworthy.

Now that the 15-year grace period is ending, China is arguing vociferously that it should be automatically upgraded to market-economy status. That would make it a lot harder to prosecute dumping cases against state-subsidized Chinese industries. And it would have serious consequences for workers around the worl who have to compete with them.

Change you can roll your eyes at.

But has anything changed in China? The group Manufacturers for Trade Enforcement, of which the Alliance for American Manufacturing is a part, certainly doesn’t think so. China’s government continues to supply “opaque” tax credits and cheap loans to its producers. Domestic steelmakers, for one, have been sweating out a glut of cheap Chinese steel for over a year.

Said Heidi Block, who heads up the Aluminum Association, whose businesses and workers have been hit hard by surging Chinese imports:

The Chinese economy does not meet the basic requirements set forth by U.S. statutes and the Department of Commerce for a functioning market economy, and we will work together in this coalition to speak loudly, and with one strong voice, to prevent China from gaining a status that it does not yet deserve.

Hey, look: There’s nothing wrong with healthy competition. But despite promises to reform over the past 15 years, the Chinese government has been feeding its domestic industries steroids. That has contributed, in part, to millions of lost American manufacturing jobs. It should not be rewarded market economy status for doing so.